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Dells road to recovery

Once the leading PC vendor worldwide, Dell has lost its grip on the marketplace. In recent years, the brand has been tarnished by numerous product recalls and complaints surrounding false promises in its advertising.

Its latest move sees the PC giant launching its first ultra-light laptop, the Adamo, designed to compete head-on with the Apple Macbook Air (MW last week). It is part of plans to scale back its production of “utilitarian” PCs in favour of luxury laptops, announced at the Consumer Electronics Show in Las Vegas last week.

It believes the time is right for the company to enter the luxury market despite collapsing consumer demand for electronics. Brent Wampler, Dell’s director of global product marketing, says: “Consumers want high performance laptops that can be tailored more personally to them.”

Dell’s ambition is lauded by Roger Kay, analyst at Endpoint Technologies Associates. “For years, Dell has been known for low-cost designs and being able to offer efficient delivery,” he says. “With this laptop, Dell is looking to make a design statement.”

The launch comes at a critical time for Dell, which is second only to Hewlett-Packard as a computer vendor. Late last year, Dell announced cost-cutting measures of $3bn (£1.97bn) in the next financial year and a restructure that lead to the departure of two of its marketing chiefs.

Chief marketing officer Mark Jarvis left at the end of 2008 and, according to legal papers will receive a severance payment of $1.25m (£851,000). His departure came closely after that of vice-president for marketing Casey Jones.

Jarvis’s replacement Erin Nelson, formerly vice-president of marketing for EMEA, faces a battle on two fronts: not only must she convince consumers that Dell is moving more upmarket, she must firefight suggestions that its “Dell Hell” reputation is deserved.

Analysts say that part of the problem is that Dell has failed to reach out to consumers in the same way it did with businesses and education establishments in the late Nineties. David Daoud, senior analyst at technology consultancy IDC, says: “Once Dell dominated market share, but that was at a time when the company didn’t really have to win the hearts and minds of its customers. Businesses and educational establishments dominated their order books. Now, as the economic world crumbles around us, it does have to win over cash-minded customers.”

As the dismal economic conditions continue to threaten the industry, that task seems even more difficult, with upgrading personal computing increasingly seeming a luxury instead of an asset. Ranjit Atwal, principal analyst for Gartner’s client computing markets group, says: “The PC market is slowing down as a result of the global economic turbulence, and Dell is not immune from this. The company has to focus on making itself as valued and noticeable as the likes of HP and Acer. The new products appear to be what the market needs, but it faces the challenge of making itself noticeable in such a crowded market.”

Another analyst, who asked to remain anonymous, says: “Its vision to reclaim its dominant position by focusing on launching what it deems premium, industry-changing products in a recession could be a huge costly failure.”

Ovum research shows that in terms of shipments, Dell’s worldwide market share has declined from 14.2% in 2007 to 13.2% last year, while Acer’s climbed to 12.3% from under 10%. Meanwhile research from IDC reveals PC shipments worldwide dropped 0.4% in the fourth quarter from a year earlier, the first year-on-year decline in six years. According to research from Gartner, Dell has seen its PC shipment volumes fall over the past year by almost 6%.

Further threats to its market presence have emerged in recent weeks. At the Consumer Electronics Show in Las Vegas at the start of the month, while Dell unveiled the Adamo, Elonex, a small British computer maker was unveiling the Elonex Websurfer, a netbook which fits into a handbag and costs just £99. Marks & Spencer and Next say they are considering stocking them.

Jason Hemsworth, strategic director of brand consultants Jump, says Dell needs to move away from its staid image. “Dell has suffered recently, especially in the US where it was nicknamed Dell Hell. It really needs to rebrand itself and make sure it stands out in the crowd, in the way its competitors have done,” he says.

Amid a massive cost-cutting drive that could potentially see Dell’s $700m (£475m) budget cut, it must pull off both a reputation turnaround and convince consumers that its cutting-edge luxury credentials can rival the more sophisticated lure of brands such as HP, Sony and Apple.

Dell Hell

Senior executives, including chief marketing officer Erin Nelson, must tackle Dell’s fading reputation after a series of fiascos, particularly in the US. Earlier this month, US consumers sued Dell for false advertising and, after much legal wrangling, it agreed to pay $3.35m (£2.25m) to settle claims by 34 state attorneys general that it used deceptive financing and warranty practices in its US ads.

David Daoud, senior analyst at IDC, says the wrangling tarnished Dell’s reputation worldwide. “When Dell switched its attentions to serving the consumer market, it hit problems. Dell went down the wrong road and made promises it couldn’t meet. The problem hit the headlines and since then, it has found it hard to recover,” he says.

Advertising since last year has been created by WPP-owned Enfatico, which was set up to service Dell and has been tasked with increasing the brand’s consumer presence.

Rumours in the US suggest this has been far from an easy task for the agency. Dell denies any friction between the company and Enfatico.

Yet the departure of Dell’s Enfatico architects CMO Mark Jarvis and Casey Jones will cast doubt on the agency model. Both had pushed hard for the innovative WPP-Dell partnership. For the moment at least, Dell remains publicly committed to Enfatico.

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